Scheme of Recent Advances in the Field of Accounting and Economics: Application of Macro Accounting Theory in Economic Forecasting

Document Type : Original Article

Authors

• Vahid Bekhradi Nasab
• Ehsan Kamali
• Khadije Ebrahimi Kahrizsangi

Department of Accounting, Najafabad Branch, Islamic Azad University, Najafabad, Iran

10.22067/ijaaf.2020.39260

Abstract

Macro accounting introduces the cost stickiness behavior of all companies as aggregate cost stickiness. This theory states that since the periods of aggregate cost stickiness are more likely to be reserved for resources by companies facing with fall in sales (declining sales), periods of this sequence are associated with low unemployment. Every certain unemployment rate creates a certain increase in wages because wage costs represent General, administrative and sales costs. Based on this, the present study has applied macro accounting information to forecast the unemployment rate. The statistical population of this study includes all companies listed on the TSE. Macro accounting emphasizes economists' view of seasonal accounting. Therefore, data collection every quarter, and observations include 44 times (2008: Q1-2018: Q4). The method of model VAR. Also, to study the forecast's accuracy, the methods of the mean absolute value of error, mean of square error, and criterion of the average percentage of the absolute value of error have been used. Evidence suggests that aggregate cost stickiness forecast changes in the unemployment rate in the future. Reducing the cost stickiness by 1% reduces the unemployment rate by 0/34% in the next quarter. Another result of the research is the accuracy of the regression pattern's forecast in the short term

Keywords

• Macro Accounting
• Cost Behavior
• Aggregate Cost Stickiness
• Unemployment Rate Forecast
• Vector Auto Regression

---

References

Abdalla, A.M. (2016). The Power of Aggregate Book-to-Market Innovations: Forecasting, Nowcasting, and Dating the Real Economy. SSRN Electronic Journal, Doi: 10.2139/ssrn.2871535

Aloi, M. Hoefele, A. (2019). Wage stickiness, offshoring and unemployment, Economics Letters, Elsevier, vol. 177(C), 56-59.

Anderson, M.C. Banker, R.D. and Janakiraman, S.N. (2003). Are selling, general, and administrative costs“sticky”?. Journal of Accounting Research. 41(1), 47–63. https://doi.org/10.1111/1475-679X.00095

Anderson, S.W. and Lanen, W. (2007). Understanding Cost Management: What Can We Learn From the Evidence on “Sticky” Costs. SSRN Electronic Journal, Doi: 10.2139/ssrn.975135

Anderson, S.W. Chen. C.X. and Young, S.M. (2005). Sticky Costs as Competitive Response: Evidence on Strategic Cost Management at Southwest Airlines. SSRN Electronic Journal, http://www.doc88.com/p-993992687658.html

Banker, R.D. and Byzalov, D. (2014). Asymmetric cost behavior. Journal of Management Accounting Research, 26 (2), 43–79. https://doi.org/10.2308/jmar-50846

Banker, R.D. Byzalov, D. Ciftci, M. and Mashruwala, R. (2014). The moderating effect of prior sales changes on asymmetric cost behavior. Journal of Management Accounting Research, 26 (2), 221–242. https://doi.org/10.2308/jmar-50726

Calleja, K. Steliaros, M. and Thomas, D.C. (2006). A note on cost sickness: Some international comparison. Management Accounting Research, 17(2), 127-140. https://doi.org/10.1016/j.mar.2006.02.001

Carlton D. and Perloff, J. (2005). Modern industrial organization. (4th edition) Boston, MA:

Chen, C.X. Lu, H. and Sougiannis, T. (2012). The agency problem, corporate governance, and the asymmetrical behavior of selling, general, and administrative costs. Contemporary Accounting Research. 29 (1), 252–282. https://doi.org/10.1111/j.1911-3846.2011.01094.x

Chen, C.X. Gores, T. and Nasev, J. (2013). Managerial overconfidence and cost stickiness. SSRN Electronic Journal, Doi: 10.2139/ssrn.2208622

Crawley, M.J. (2015). Macroeconomic Consequences of Accounting: The Effect of Accounting Conservatism on Macroeconomic Indicators and the Money Supply. The Accounting Review, 90(3), 987-1011. ttps://doi.org/10.2308/accr-50998

Dierynck, B. Landsman. W.R. and Renders, A. (2012). Do Managerial Incentives Drive Cost Behavior? Evidence about the role of the zero earning benchmark for labor cost behavior in private Belgian Firms. The Accounting Review, 87(4), 1219- 1246. https://www.jstor.org/stable/23246275

Do, C. and Nabar, S. (2018). Macroeconomic effects of aggregate accounting conservatism: A cross‐country analysis. Journal of International Financial Management & Accounting, 30(2), 83-107. https://doi.org/10.1111/jifm.12093

Fildes, R. and Stekler, H. (2002). The state of macroeconomic forecasting. Journal of Macroeconomics. 24 (4), 435–468. https://doi.org/10.1016/S0164-0704(02)00055-1

Goldena, J. Mashruwalab, R. and Pevznerc, M. (2020). Labor adjustment costs and asymmetric cost behavior: An extension. Management Accounting Research, 46, https://doi.org/10.1016/j.mar.2019.07.004

Hann, R.N. Li, C. and Ogneva, M. (2017). Another Look at the Macroeconomic Information Content of Aggregate Earnings: Evidence from the Labor Market. Research Collection School Of Accountancy, 51-62. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2993654

Konchitchki, Y. and Patatoukas, N. P. (2014). Accounting earnings and gross domestic product. Journal of Accounting and Economics, 57(1), 76–88. https://doi.org/10.1016/j.jacceco.2013.10.001

Keynes, J.M. and  Keynes, J.M. (1936). The General Theory of Employment, Interest and Money. 'Chapter 2. The Postulates of the Classical,

Konchitchki, Y. and Patatoukas, N.P. (2014). Taking the Pulse of the Real Economy Using Financial Statement Analysis: Implications for Macro Forecasting and Stock Valuation. The Accounting Review,  89(2), 669-694. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2365633

Laurion, H. and Patatoukas, P.N. (2016). From micro to macro: Does conditional conservatism aggregate up in the National Income and Product Accounts. University of California at Berkeley, Haas School of Business, version,

Nallareddy, S.A. and Sadkay, G. (2016). Uncertainty and Sectoral Shifts: The Interaction between Firm-Level and Aggregate-Level Shocks, and Macroeconomic Activity. Management Science, 64(1), https://doi.org/10.1287/mnsc.2016.2581

Nallareddy, S. and Ogneva, M. (2015). Predicting Restatements in Macroeconomic Indicators using Accounting Information.

Nallareddy, S. and Ogneva, M. (2017). Predicting Restatements in Macroeconomic Indicators using Accounting Information. THE ACCOUNTING REVIEW, 92(2), 151–182. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2444014

Nekarda, C.J. and Ramey, V.A. (2013). The cyclical behavior of the price-cost markup. Working Paper 19099, National Bureau of Economic Research, https://www.nber.org/papers/w19099

Okun, A.M. (1963). Potential GNP: Its measurement and significance. In Proceedings, Business and Economic Statistics Section of the American Statistical Association, 89–104.

Rouxelin, F.W. and Yehuda,W.N. (2018). Aggregate Cost Stickiness in GAAP Financial Statements and Future Unemployment Rate. The Accounting Review, 93(3), 299-325. https://doi.org/10.2308/accr-51939

Subramaniam, C. and Watson, M.W. (2016). Additional Evidence on the Sticky Behavior of Costs. Advances in Management Accounting (Advances in Management Accounting), 26, 275-305. https://doi.org/10.1108/S1474-787120150000026006

Zambrana, R. (2017). Taking the pulse of the real economy using financial statement analysis: THE EUROPEAN PERSPECTIVE. Nova School of Business and Economics (NSBE). http://hdl.handle.net/10362/36557.